IRS Commissioner Wants to Show Progress Amid Threats of Budget Cuts

During his Senate confirmation last February, Daniel Werfel told lawmakers that if he won the Internal Revenue Service commissioner job, he would work to increase “public confidence” in the beleaguered agency and use the $80 billion Congress appropriated to build “a more modern and high performance.

A year later, Mr. Werfel has overseen the elimination of a backlog of thousands of tax returns, reduced wait times on IRS phone lines and the creation of a system that allows eligible taxpayers to file their federal returns at no cost. But those achievements were not enough to satisfy Republicans, who accused Mr. Werfel of making the IRS more intrusive and even engaging in illegal behavior.

Hostile congressional hearings are routine for IRS commissioners and when Mr. When Werfel testifies before the House Ways and Means Committee on Thursday, he will receive a cold reception as he rejects efforts to cut his agency’s budget.

For Mr. Werfel, the showdown is an opportunity to explain why even skeptics would benefit from a well-funded IRS

“I think the most powerful statement the IRS can make, when there’s a proposal to significantly reduce our budget, is to show our work and show that we’re on a strong path to improving tax operations in a way that benefits taxpayers,” Mr. Werfel said. in an interview this week.

The IRS was set to receive $80 billion as part of the 2022 Inflation Relief Act, and the money was expected to help the agency crack down on tax fraud and modernize its outdated technology. As part of the deal to raise the debt ceiling last year, Democrats agreed to Republican demands to restore $20 billion of those funds. And Republican lawmakers have expected additional cuts in recent months amid negotiations to pay for other policies.

During his first year on the job, Mr. Werfel sought to allay concerns raised by the agency’s critics that the IRS would hire thousands of armed agents to harass middle-class Americans and small businesses. To do so, he focused on efforts to make the IRS more accessible by staffing customer service centers and allowing taxpayers to reach the agency without waiting hours on the phone.

As part of its modernization campaign, the IRS also announced initiatives to crack down on wealthy tax evaders, ended the practice of sending agents to residences unannounced to collect unpaid taxes and began introducing artificial intelligence technology into its audits.

But top Republicans say any signs of progress at the IRS are overshadowed by lingering problems. They insist that Mr. Werfel’s agency, which they believe has a history of targeting conservatives, is influenced by politics and favors Democrats.

That concern has been fueled by recent security breaches. The IRS has come under pressure to improve its data security protocols after a former contractor accused of leaking the tax records of Donald J. Trump and other wealthy Americans was sentenced to five years in prison. The report he published last week Chief Treasury Inspector for the Tax Administration found that as of July, more than 200 former IRS employees or contractors still had access to sensitive information.

Members of the tax committee are expected to press Mr. Werfel on Thursday on why he delayed implementing a controversial tax policy that would have required users of digital wallets and e-commerce platforms such as Venmo, PayPal, Cash App, StubHub and Etsy to begin reporting small transactions tax collection agency. The policy was enacted as part of the 2021 U.S. bailout plan and has drawn criticism that it would increase control over lower- and middle-class taxpayers. Although Republicans hate the policy, they argue that Mr. Werfel’s delays violate the law.

“The IRS should not be shielding Democrats from the consequences of their bad lawmaking,” Rep. Jason Smith of Missouri, the Republican chairman of the Ways and Means Committee, said in a statement. “The tax administration cannot bypass the Constitution and simply rewrite the laws.”

Mr. Werfel said he plans to argue that he has the right to delay the so-called Venmo tax because the law, as written, would cause widespread confusion and potentially hurt taxpayers. And he claimed that data security at the agency had improved significantly in the past year. Such incidents, however, have given critics of the IRS fodder to argue that it does not deserve the extra funding it has received.

“Whenever you have budget negotiations, you want money for Ukraine or Israel or something like that, we’re going to take it out of the IRS piggy bank,” said Grover Norquist, founder and president of Americans for Tax Reform, a group that promotes lower taxes. “Because they haven’t shown any seriousness about getting better at anything.”

The Biden administration has said the continued attacks on the IRS are part of a strategy to weaken the agency so it doesn’t have the capacity to catch wealthy taxpayers who avoid paying what they owe. The Treasury Department estimates that the United States has a a almost 700 billion dollars “tax gap” revenue that is not collected each year and argues that stronger enforcement of the tax code is key to reducing America’s reliance on borrowed money.

“There are those with power and those with wealth who would like nothing more than for the IRS not to have the resources to go after them and make them pay their fair share,” said Wally Adeyemo, deputy finance minister. interview.

Frequent discussions about defunding the agency have left Mr. Werfel looking over his shoulder as he tries to carry out priorities in an ambitious multi-year operating plan the agency drafted last year.

Mr. Werfel said the barrage of criticism leveled at the IRS over the years has taken its toll on its staff, but he believes morale is beginning to improve. He likens the agency’s role to that of an impartial judge necessary for government to function, but acknowledges the challenge of avoiding politics.

“I think most people see us as a tax collector, and that’s not the most popular action the government takes,” Mr. Werfel said. “It is becoming a reality that when there is a debate about the role of the government, the size of the government, the actions of the government, that the Tax Administration will be front and center in that debate.”

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